Banks, investors and insurers have an "outsize opportunity" to combat the huge climate impact of the global food system by concentrating on a handful of actions that could slash global emissions by a fifth while unlocking $1.5 trillion in economic benefits by the end of the decade.
That is the conclusion of a major new report, which captures data from over 400,000 companies worldwide — including food giants Nestlé, McDonald's and Walmart — in a bid to map the relationship between the financial sector and the food system.
Published by Planet Tracker, the report — described as the "largest combined analysis of its kind" — argues financial institutions may hold the key to driving down greenhouse gas emissions from the food system in the near term, by strengthening investment standards in areas such as deforestation, food waste and agricultural methane emissions, supply chain traceability, regenerative farming and meat alternatives.
The think tank said 17,300 investors and funders were at present providing around $8.6 trillion of private finance to food and agriculture-focused companies in its dataset, but that much of this backing continues to fund an "unsustainable" global food system characterized by high emissions, damaging environmental impacts and a lack of focus on building resilience to worsening climate risks.
The food sector is also facing major transition risks as diets and technologies shift in support of net-zero goals. The report calculates that unless the industry responds to these transition risks, firms at the center of the food supply system could lose more than a quarter of their value in the coming years.
Moreover, the report warns that a failure to act would undermine global climate goals, as well as investors' individual net-zero targets.
In contrast, the report argues that funneling around 4 percent — $300 billion to $400 billion a year — of the current multitrillion dollar flows of food sector private finance towards six priority areas could combat these risks and slash food sector emissions by 60 percent.
Given the size of the food system's impact on the climate, the report contends such reforms could amount to the elimination of 10 gigatons of CO2 each year — or around a fifth of total overall GHG emissions worldwide — which would be double the annual emissions of the world's biggest emitting economy, the U.S..
The report warns that a failure to act would undermine global climate goals, as well as investors' individual net-zero targets.
Moreover, Planet Tracker estimates such actions could deliver "potentially huge" economic benefits — totaling over $1.5 trillion — through reduced waste, improved supply chain transparency and efficiency, diversified supplies, reduced business risks and potentially higher yields.
The shift towards more sustainable diets, farming and food supply chains therefore offers a major investment opportunity for financial firms, according to the think tank.
"There are significant risks for financial institutions that fail to position themselves to take account of the inevitable changes that will impact the global food, but for those that seek to actively support and drive the required changes there are significant investment opportunities," the report states.
The analysis comes at a particularly pertinent time for the global food system, which has been left reeling by lingering impacts of the COVID-19 pandemic on supply chains, surging energy and fertilizer costs exacerbated by Russia's war in Ukraine, and worsening climate impacts such as drought, flooding and storms that have contributed to food shortages worldwide.
In the U.K., consumer prices for many staple food items have risen around 10 percent over the past year thanks to inflationary pressures, while supermarket shelves for certain fruit and vegetables have been left bare on occasions, underscoring the multitude of risks facing food supply chains. Many studies — including the U.K. government-commissioned report led by Leon founder Henry Dimbleby in 2021 — have argued the food system is behind the times and requires transformative change in order to contend with 21st century risks.
Peter Elwin, director of fixed income and head of food and land use program at Planet Tracker, said while the global food system generates almost a fifth of global GDP, it is "inherently fragile and no longer fit for purpose."
It calls on financial firms to require fully traceable supply chains from the food firms they invest in by 2030 and engage with them to reduce food loss and waste, which the U.N. has estimated accounts for around 8% to 10% of global GHG emissions.
"From conception in the farm to consumption on the fork, the global food system accounts for a third of greenhouse gas emissions and endangers 86 percent of species on the IUCN Red List," he warned. "Even as food reaches the end of the chain, one-third is lost or wasted. Unless the global food system is transformed, none of the global targets, pledges and ambitions that have been agreed in recent years with respect to people, planet and climate will be achieved."
However, in setting out a roadmap for just a handful of focus areas Planet Tracker argues financial firms worldwide hold the key to driving transformative changes across the agricultural industry in the near-term.
Specifically, it calls on financial firms to require fully traceable supply chains from the food firms they invest in by 2030 and engage with them to reduce food loss and waste, which the U.N. has estimated accounts for around 8 to 10 percent of total global GHG emissions.
The report also urges the financial sector to implement robust policies to ensure zero deforestation risk in investment portfolios, target deforestation-linked emissions in corporate net zero strategies and encourage investment in regenerative farming activities.
Moreover, investors should urgently allocate capital away from industrial meat production towards alternative protein producers, which it said would help to slash methane emissions from agriculture in line with global targets, while also helping develop the market for meat alternatives.
"From halving food waste to stopping deforestation, six steps by investors could take 60 percent of food's emissions off the table," added Elwin. "Financial institutions providing debt and equity finance have an outsized opportunity to influence systemic change."
The global food system needs to produce more with less in order to successfully feed a growing population without exceeding planetary boundaries, particularly in a world increasingly characterized by worsening climate impacts.
Wrestling with these realities is clearly a major challenge for food firms, policymakers and investors, yet as Planet Tracker warns, the business as usual scenario for the food system is far from appetizing. Global food security, climate goals and billions of dollars of value are all at risk.
Given attractive solutions in the form of lower carbon diets, alternative proteins, regenerative farming and supply chain traceability technologies are gaining significant traction, both the opportunity and imperative for investing in a far more sustainable food system is crystal clear.